Accounting standards require all entities to classify contributions from their owners as either equity or a liability depending on their terms, for entities preparing accounts under FRS 102 Financial Reporting Standard, the requirements are in Section 22 Liabilities and Equity.

For most companies this is a simple exercise as their only capital is ordinary shares and there is a clear distinction in law and in substance between this and any loans from the shareholders to the company. Only a minority of companies have any instruments which require more careful analysis, for example preference shares.